There has been a lot of confusion and speculation regarding the Affordable Care Act (ACA) and how it will affect taxpayers. Here's a simplified breakdown:

Individuals

Beginning January 1st, 2014 all individuals are required to be enrolled in minimum essential healthcare or pay a penalty.

The penalty will phase in…

2014: the greater of $95 up to a maximum of 3 times that amount ($285) per family OR 1% of taxable income

2015: the greater of $325 up to a maximum of 3 times that amount ($975) per family OR 2% of taxable income

2016: the greater of $695 up to a maximum of 3 times that amount ($2,085) per family OR 2.5% of taxable income

2017 and beyond: the penalty will increase annually based on the cost-of-living adjustment

Those that do not qualify for employer coverage or whose coverage is not considered affordable can turn to the health insurance marketplace to enroll in a plan and may receive aid with payments.

Reporting requirements are still being determined. Most likely the reporting requirement will be with your individual tax return.

Large Businesses

A large business for the purposes of the ACA is one with 50 or more full-time or full-time equivalent employees.

Full-time equivalent employees – full-time equivalent employees are determine by taking the total hours of part-time employees per month divided by 120 (30 hours per week which is considered full-time for this purpose multiplied by 4 weeks in a month). This means that if 23 part-time employees work 1,800 hours in a month, the business is considered to have 15 full-time equivalent employees. The full-time equivalent employees are added to the number of regular full-time employees to determine if a business reaches the 50 threshold.

Beginning January 1st of 2015 large businesses are required to provide affordable minimum essential health coverage to all full-time employees and their dependents or pay a tax.

The tax will be assessed in the case of two different scenarios

A large business that does not offer coverage and has a least one full-time employee who receives a premium tax credit could be charged a tax of $2,000 per full-time employee after excluding the first 30 employees.

Note: To qualify for the premium tax credit an individual must buy health insurance through the marketplace, be within certain income limits, file a joint return if married and cannot be claimed as a dependent by another person.

If a large business offers coverage but it is considered unaffordable to certain employees they may face a tax of the lesser of:

A large business's compliance will either be reported on employees W-2 statements in box 12 with a code of DD or by Sec. 6055 & 6056 reports covering the names of covered individuals along with their taxpayer ID number and the months they were covered.

Small Businesses

In 2014, small businesses that are not required to provide coverage may qualify for a small business tax credit of up to 50% to help offset the costs of insurance if they

have fewer than 25 full-time equivalent employees

pay annual average wages of under $50,000 and

contribute 50% or more towards employees health insurance premiums

For more information about the tax provisions of the Affordable Care Act see the IRS webpage devoted to the issue.

For more information about how this will affect your business specifically please consult your tax advisor.

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